Disclosure in Accordance with the TCFD Recommendations

In 2014 the Kubota Group established the Environmental Management Strategy Committee to deliberate on medium- and long-term targets and key measures relating to environmental conservation, as well as an environmental vision, in light of climate change and other global environmental problems and the Group’s business environment. In 2021, with the objective of realizing our own ESG management, that committee was reorganized as the ESG Management Strategy Meeting to engage in discussion of ESG-related issues on a Group-wide basis. In addition, Environmental Manager Conferences are held in each of five regions—Japan, China, Asia, North America, and Europe—to promote environmental management of the entire Group globally.

Environmental Management Promotion System

ESG Management Strategy Meeting

• Sites engaged in the business of operation or maintenance of environmental plants

The ESG Management Strategy Meeting is chaired by the president & representative director and attended by all inside directors, directors in charge of business divisions, the director in charge of finance, the director in charge of human resources, the director in charge of R&D, the director in charge of manufacturing, the director in charge of environmental management, and the general manager of the Corporate Planning & Control Department. The meeting participants discuss the medium- and long-term direction of environmental management in light of global environmental issues such as climate change and the business environment. They also decide on plans for key initiatives aimed at reducing environmental impacts and risks, and enhancing the lineup of environment-conscious products. The results of the meetings are reported to the Board of Directors and the Executive Officers’ Meeting, and are distributed throughout the Group. It also promotes management based on the plan-do-check-action (PDCA) cycle by assessing and analyzing the progress of the entire Group’s environmental conservation activities and reflecting the results when formulating new plans and policies. The ESG Management Strategy Meeting was convened four times in FY2023 to discuss environmental issues.

At the Environmental Manager Conferences, every year, in all regions, the Kubota Group policy and promotion items are communicated and the status of progress on medium-term environmental conservation targets is shared, along with case studies of energy-conservation measures, environmental risk countermeasures, and so forth. The conferences discuss matters such as how to solve issues related to environmental conservation activities in each region.
Moreover, the Group has set out environmental conservation targets taking medium-term (five-year activity period) and long-term (15-year activity period) perspectives, based on social trends and regulations in each country related to the environmental issues. The medium-term environmental conservation targets are revised every five years, or whenever necessary depending on the progress in achieving them. Medium-term environmental conservation plans are made individually by each site for global production sites. The Environmental Protection Department checks the status of progress on targets twice a year. In the same way, medium- to long-term targets for the sales ratio of products certified as Eco-Products are set and the department checks the status of progress once a year. The details and progress of the plans are also reported to the Executive Officers’ Meeting.

The outcomes of measures and medium- and long-term environmental conservation targets discussed and reported at the ESG Management Strategy Meeting are reported to the Board of Directors and Executive Officers’ Meeting, when required. From 2022, the Kubota Group revised the executive compensation system to encourage the achievement of performance targets related to business scale and profitability, as well as to accelerate efforts in ESG management. Twenty percent (20%) of the annual bonus awarded to executives is evaluated with ESG indicators, with climate change measures incorporated into a part of those indicators. Progress is evaluated based on the indicators alongside other metrics.

Based on the Kubota Group’s environmental charter, we aim to help bring about a society capable of sustainable development on a global scale. We have also declared our commitment to contributing to the conservation of the global and local environment through environment- conscious products, technologies, services, and corporate activities. As such, when we consider participating in external activities, we make sure that the environmental conservation activities, including measures promoted by the Kubota Group to tackle climate change, are consistent with our environmental charter. The decision to participate in the activities of other organizations is made after confirming that nothing contradicts with past internal decisions, our environmental charter and action guidelines, and policies and the like formulated by the ESG Management Strategy Meeting. If there are conflicts with an organization’s ideas or policies, we may decide to withdraw our participation. Also, the environmental conservation activities carried out independently by each global site are reviewed once a year to make sure that they align with the Kubota Group’s business policies and environmental conservation activity policies.

Since announcing our support of the TCFD recommendations, we have discussed the items in the diagram below related to tackling climate change within the framework of our corporate governance structure. We will continue to ramp up our climate change initiatives as we push ahead with environmental management on a global scale.

The measures for tackling the significant physical and transition risks of climate change identified in our scenario analyses, as outlined in the governance section, are managed under the oversight of the Board of Directors by way of the ESG management promotion system. In FY2014 the Kubota Group set up the Environmental Management Strategy Committee to deliberate on medium- and long-term targets and key measures relating to environmental conservation, as well as the longer-term direction of environmental management, in light of climate change and other global environmental problems and the Group’s operating environment. From FY2021, discussions of environmental issues were transferred to the ESG Management Strategy Meeting, which is chaired by the president. The objective of this meeting is to formulate policies for generating medium- to long-term corporate value from an ESG perspective and examine and evaluate key measures. Also, the outcomes of its discussions are reported to the Board of Directors and Executive Officers’ Meeting, when required.

1. *1.Global business sites
2. *2.Global production sites
3. *3.▲ indicates a negative figure.

❶ Scenario analysis assumptions

The scenario analysis in the TCFD recommendations will be used to examine the financial impact on business due to highly uncertain climate change problems and the impact on future business strategy. In our scenario analysis of the impacts of climate change, we conducted an assessment of the anticipated impacts on business in the year 2030 with the use of the publicly available 1.5°C/2°C and 4°C scenarios of mainly the IPCC and the IEA based on population increase and economic development projections through 2050

❷ Results of climate change scenario analysis in each business field

Expected impacts of climate change on the Farm & Industrial Machinery business (2030)

Much like the decarbonization of the automotive industry, we expect more stringent regulations to be adopted in the Farm & Industrial Machinery business in the future and we therefore anticipate that the push for greater diversification of power sources will gain increasing momentum in industrial machinery fields. Given the listing (taxonomy) of sustainable economic activity in Europe and the adoption of restrictions on vehicles with internal combustion engines driving into urban areas, demand for electrification in industrial machinery is expected to increase going forward. This will likely include construction machinery used in works projects and lawnmowers used to maintain public parks. The WEO forecasts that demand for oil in the transportation sector will decline under the 1.5°C scenario, but will continue to be used as a raw material in the industrial sector. Similarly, we expect industrial machinery to be used in regions where there is no easy access to charging infrastructure; for example, construction work and farming, where long working hours are a must. From a long-term perspective, we do expect to see the increased use of battery power and low- and zero-carbon fuels, but narrowing them down to just one favored power source for applications in the agricultural and construction machinery fields is proving to be a challenge. Accordingly, even though the use of electrified machinery and low- and zero-carbon fuels will have spread to some regions by 2030, we think demand for products that use fossil fuels will still persist. For this reason, we believe we must develop products that meet the need for various power sources.

Changes in weather conditions, such as temperature increases, changes in precipitation patterns, and higher levels of CO₂ in the atmosphere, may affect yields depending on the crop and the region. For example, warmer weather usually accelerates crop growth, but extreme changes in temperature or rainfall could lead to reduced yields. The FAO forecasts that particularly in temperate regions, climate change will have a negative impact on crop yields. It also anticipates that the development of crops that can cope with temperature changes, advancements in agricultural technology, the development of sustainable next-generation farming methods, and the evolution of agricultural machinery will mitigate the adverse effects of climate change on crop yields. Accordingly, we believe that changing weather conditions could bring about changes in the environment in which crops are grown, thus driving the evolution of agriculture.

The World around 2030 with Respect to the Farm & Industrial Machinery Business

The World around 2030 with Respect to the Water & Environment Business

In both the Farm & Industrial Machinery and Water & Environment businesses, we expect to see tighter restrictions on GHG emissions associated with business activities and impacts on business operations as a result of abnormal weather events. Climate change is a global issue that needs to be addressed by society as a whole, and in order to continue undertaking sustainable business activities, tackling the problem of climate change is absolutely essential. Countries worldwide are announcing carbon-neutral declarations as they work towards achieving the objectives of the Paris Agreement. In response, tighter restrictions on GHG emissions and energy use are being rolled out, including the introduction of carbon taxation and carbon border adjustment schemes. We also think investors and the markets will increasingly demand companies to take action on decarbonization. The carbon price in the EU ETS reached $109 in 2023 (World Bank, 2023) and the burden on companies is expected to grow heavier up ahead as GHG emission regulations are further tightened. It is therefore imperative that we push ahead with measures to address climate-related regulations and the risk of higher costs associated with our business activities if we are to maintain our competitiveness.

The Kubota Group does business in over 120 countries and we have a global network of suppliers and production sites. In the 4°C scenario in particular, changes in weather conditions, such as temperature increases, changes in precipitation patterns, and higher levels of CO₂ in the atmosphere, may lead to more frequent storm and flood damage. This will not only affect our company, but also our suppliers and other partners involved in our business operations. We operate in the fields of food, water, and the environment, and we provide products and services that support people’s lives. Accordingly, we believe we must build a business structure that is resilient to climate change to ensure the continued supply of our products and services even in the event of weather disasters and the like.

<Carbon neutrality and recycling-based society sought by Kubota in the farming sector>

The diagram below represents Kubota’s contributions, through its products and services, to carbon neutrality and the recycling of resources in the farming sector.

<Roadmap to Carbon Neutrality>

In our climate-related scenario analysis, by the year 2030 we assume that electrification and the use of low- and zero-carbon fuels will have gained traction in some regions. However, we also believe that demand will persist for our agricultural and construction machinery equipped with internal combustion engines. To achieve a low-carbon economy, it is vital that we demonstrate the technological potential of our products in an age that demands carbon neutrality, while also accommodating the growing needs of customers and developing social infrastructure.
We believe that in the carbon-neutral era beyond 2030, there will be plenty of power source options, so we will need to be ready on all fronts. The transition plan below shows how we intend to fight climate change.

The above roadmap is based on information that can be studied at present. It is subject to major changes, depending on future technological development and market trends.

1. *1.Compact electric tractors:www.kubota.com/news/2022/20220905.html
2. *2.Electric Mini Excavatorwww.kubota.com/news/2023/20231218.html
3. *3.Hydrogen engineswww.kubota.com/news/2022/20221003.html
4. *4.Micro hybrid engines: global.engine.kubota.co.jp/en/technology/microhybrid/
5. *5.Agricultural solutions: www.kubota.com/innovation/smartagri/
6. *6.Farm water management systems: agriculture.kubota.co.jp/product/kanren/wataras/ (only in Japanese)
7. *7.Systems for recycling local resources using agricultural biomass: www.kubota.co.jp/news/2022/management-20220405.html (only in Japanese)
8. *8.J-Credit Scheme certification for CO₂ reduction projects: https://agriculture.kubota.co.jp/service/j-credit/ (only in Japanese)
9. *9.Smart water pipe installation: www.kubota.co.jp/product/ironpipe/products/technology/innovation/ (only in Japanese)
10. *10.IoT solutions for water related plants and equipment: www.kubota.co.jp/product/ksis/ (only in Japanese)

R&D Costs Related to Environmental Conservation, Including Carbon Neutrality Measures

❹Assessing Our Resilience to Climate Change

We are steadily pressing ahead with our transition plan to counter anticipated risks and seize business opportunities. Based on the results of our scenario analysis that universally applies to both our Farm & Industrial Machinery and Water & Environment businesses, we believe our operations will remain viable under any scenario. By taking the initiative to flexibly adapt to changes in society as a whole, including climate- related regulations, the development of social infrastructure, market trends, and technological advancements, we believe we possess sufficient resilience to transition towards economic activities that demand carbon neutrality. Going forward, through our business operations, we will continue to provide products and services that contribute to solving climate change issues and help bring about a decarbonized world.

Future projections for population increase and economic development represent a significant opportunity for our business. However, if the world continues with the same kinds of economic activities as now, they could place a burden on the Earth that exceeds its capability for self-purification and its carrying capacity. This is a risk for the continuity of business activities. We will contribute to the realization of a sustainable society through our business activities and the provision of products and service solutions.

Solar power generation system installed on the rooftop of a plant in China

Reducing Scope 1 and 2^*1 Emissions

The Kubota Group is continuing to implement energy-saving countermeasures and productivity improvement activities to reduce CO₂ emissions from its own sites, with a focus on production sites. While we will continue to focus on these efforts, we are currently transitioning to fuels that have low CO₂ emissions mainly by discontinuing the use of coking coal in the melting process at our casting plants and switching to electric furnaces. In addition, we are endeavoring to expand our use of renewable energy by installing solar power generation systems and purchasing green power and so forth. At the same time, as we reorganize and transfer our production sites, we will adopt production methods that have a low environmental impact and make other efforts to save energy and resources through production innovation.

Controlling Scope 3^*2 Emissions

Over 80% of the Kubota Group’s Scope 3 emissions are generated during the use of sold products. Therefore, our efforts to develop products that can perform more work more precisely using less energy by improving the operational fuel consumption of our agricultural and construction machinery tie in directly to emissions reductions.
Through the robotization of agricultural machinery and the use of ICT, we are promoting smart agriculture. This is not only saving labor in agricultural operations, but also contributing to energy and resource savings. Currently, fossil fuels such as diesel and gasoline are the main sources of energy, but we are striving to utilize fuels that have lower CO₂ emissions, such as biofuels (e-fuel) and synthetic fuels. We are also actively pursuing R&D aimed at the decarbonization of motive power, such as electrification, hybrid systems, and fuel cells.
Also, in terms of measures for reducing emissions generated from the transportation of products, we are taking steps to improve load efficiency and drive a modal shift mainly by shipping products together and sharing the use of shipping containers with other companies.

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  Concept machine: New Agri Concept

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  Electric construction machinery and tractor

1. *1.Scope 1: Direct emissions by the Group itself
   Scope 2: Indirect emissions from purchased electricity, etc.
2. *2.Scope 3: Other indirect emissions (emissions by others or at customers’ sites related to the Group’s activities)

Environmental Contribution in the Field of Food

In the field of food, including agriculture, the Kubota Group is working to increase harvest yields per area and the quality of crops by further promoting smart agriculture. The goal is to increase crop yields to meet rising food demand without increasing cultivated area. In addition to saving energy and resources primarily by improving operational efficiency and applying the right amounts of fertilizer and pesticides, we intend to curb deforestation and the destruction of nature for farmland expansion.
In other initiatives, we provide the farm water management system WATARAS, which allows users to remotely and automatically control water flowing in and out of rice paddies while monitoring the water level of the paddies themselves. We are conducting trials of a "smart rice paddy dam" that temporarily retains rainwater in a rice paddy by enabling users to remotely increase the water level setting for draining water from the rice paddy when there is a danger of river flooding due to heavy rain. This is expected to serve as a way of preventing flooding and increasing the resilience of local areas to water damage.
For the future, we are looking at building a food value chain data linking platform from crop production, food distribution to consumption and supplying an automatic management system that uses AI. This would help visualization of demand trends, promoting a shift to "market-in" agriculture where production and sales are conducted in response to demand. At the same time, it would deliver safe, secure crops with a high level of freshness to consumers, thereby helping to reduce food losses.

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  Tractors hard at work in global markets

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  Control screen of Kubota Smart Agri System

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  Farm Water Management System WATARAS

Environmental Contribution in the Field of Water and Waste

The Kubota Group supports water infrastructure as a comprehensive manufacturer of water-related items from pipe materials used for water supply and sewage to engineering of water treatment plants. We use these technologies to provide resource recovery solutions, such as fermenting sewage sludge generated in sewage treatment plants and waste such as food residue generated by agriculture and food plants to extract biogas for reuse as an energy resource, generating electricity using the recovered biogas. We are working on projects that contribute to the building of a circular economy but which also help lower CO₂ emissions by curtailing the need to mine virgin resources from the earth by providing crushing and sorting techniques to recover such resources as metal and plastics from waste—a process known as urban mining—as well as melting technology that enables the reuse of incinerated waste residue.
As an example of reducing society’s GHG emissions, the Kubota Group has delivered a waste incineration and melting plant (Nagano Regional Alliance/Chikuma Environment and Energy Center), which uses the thermal energy generated when waste is burned to generate electricity. Its effect of reducing CO₂ emissions is about 5,100 t-CO₂/year.

Environmental Contribution in the Field of Urban and Living Environments

The Kubota Group is saving energy and improving operational efficiency on construction sites by leveraging our strengths in the water environment infrastructure business and construction machinery business. One way we do this is by supplying a smart water pipe installation system that conducts optimal installation based on pipeline information.
In the area of agricultural and construction machinery, we use a fault diagnosis app to reduce downtime of machinery that has a fault, helping to increase the efficiency of maintenance work.
Going forward, we will look at building a platform that aggregates underground pipe data to help in reducing construction time and labor for urban construction projects and so forth and providing a solution for extending the life and renewing underground infrastructure. These initiatives will also help to save energy in the construction field.
We will enhance the disaster resilience of urban infrastructure such as water supply and sewage systems by upgrading water supply and sewage facilities and river flooding monitoring and management platforms using plant information and sensors. Moreover, by appropriately operating these plants and facilities under optimal conditions, we will also contribute to energy saving.

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  Plastic crushing and sorting facility

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  Rotary-type surface melting furnace that can liquefy residue and ash, turn it into slag, and reuse it as a resource

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  Agricultural and construction machinery fault diagnosis app

Initiative #1 — Contributing to carbon neutrality with engine solutions

Hydrogen engine currently in development

The engines mounted in our agricultural machinery, construction machinery, and electricity generators need to be durable enough to handle heavy workloads on a regular basis. Internal combustion engines are well-suited for use under such conditions, so we expect they will continue to be utilized as a power source for agricultural and construction machinery in the future. However, the growing need for carbon neutrality in society means the types of industrial engines required are also changing.

The Kubota Group intends to offer three solutions in order to help solve these kinds of challenges in the industry. Our pure engine solution aims to improve the combustion efficiency of engines and contribute to a reduction in CO₂ emissions from engine use. Our hybrid solution utilizes an electric motor, which means the engine can be downsized to reduce exhaust gas emissions. And with our fuel solution, we provide engines that can run on alternative fuels like hydrogen, natural gas, and ethanol, thus helping lower CO₂ emissions. By offering these engine solutions, the Kubota Group is committed to the challenge of achieving carbon neutrality.

• Pure Engine Solution

  

  Reducing CO₂ emissions by improving combustion efficiency

• Hybrid Solution

  

  Downsizing the engine and lowering fuel consumption by using a motor to supplement output

• Fuel Solution

  

  Addressing demand for low-carbon and decarbonized fuels such as hydrogen, natural gas, and ethanol

For more details about our engine solutions:
global.engine.kubota.co.jp/en/sustainability/carbon-neutrality/

nitiative #3 — Kubota technology helping to lower GHG emissions by extending rice paddy mid-season drainage

As one measure for realizing carbon neutrality by 2050, the Kubota Group is continuing to provide solutions geared towards lowering GHG emissions generated from agriculture and other activities in the society. It is estimated that globally, methane emissions from agriculture amount to 150 million t-CO₂, with approximately 12 million t-CO₂ attributed to rice cultivation in Japan. Agriculture is susceptible to the impacts of climate change and rising temperatures and changes in rainfall are expected to affect crop yields. Given the expectation of higher food demand in the future due to population growth and economic development, we consider it necessary to lower greenhouse gases (GHG) generated from agricultural practices.
We currently offer a service through which farmers can reduce their methane emissions and have the reduced amount of GHG emissions credited under the J-Credit scheme by extending their mid-season rice paddy drainage period. We started engaging with farmers after registering the project with the J-Credit scheme in June 2023 and by March 2024, roughly 1,700 tons-CO₂e had been approved as credits. In order to promote the utilization of the J-Credit scheme, we established an association to operate and manage J-Credit projects.
If project participants use the Kubota Smart Agri System (KSAS) and farm water management system WATARAS to support their farm operations, they can further reduce their environmental footprint and contribute to reductions in GHG emissions.
Also, farmers can not only lower their GHG emissions, but they can generate revenue through the creation of credits. We will continue to further expand such services that help suppress GHG emissions so that farmers can produce crops while minimizing their environmental impact at the same time.

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Mid-season drainage period can be extended with WATARAS, Kubota’s water management system

WATARAS utilizes ICT to enable users to remotely monitor water management in paddy fields and the automated control of water supply and drainage on a smartphone or similar device. By setting the water level in the paddy field in advance, WATARAS’s water measurement function means users can maintain a consistent water level without having to physically visit the field. The scheduling function also lets users easily set up a water management schedule, including the mid-season drainage period. These features reduce the amount of labor and water required for paddy field water management.

• Extension of mid-season drainage

  

Mid-season drainage is the wet-rice farming practice of draining the paddy field of water and drying out the soil in order to adjust the growth of rice plants by preventing root rot and controlling excessive tillering. By extending the traditional length of time the paddy is left dry by one week, the soil can absorb more oxygen and repress the activity of methane-producing bacteria, thus reducing methane emissions by around 30%.

For more details about Kubota’s J-Credit scheme:
agriculture.kubota.co.jp/service/j-credit/ (only in Japanese)